Under pressure: Australia's $510 billion 'social purpose market'

Every year Australia spends more than half a trillion dollars on social purpose goods and services directed at health, welfare and education, almost one third of the nation’s GDP; as shown in the report Australia’s social purpose market: Understanding funding flows and exploring implications released today by PwC partner James van Smeerdijk and Centre for Social Impact (CSI) CEO Dr Andrew Young.

The report estimates social purpose market expenditure at $510 billion which includes education ($113bn or 22%), health ($169bn or 33%), social security and welfare ($171bn or 34%), and housing and community amenity ($33bn or 6%).

The social purpose market is dominated by governments which contribute 81% of the expenditure (Commonwealth Government $282bn, State Governments $121bn, and Local Governments $10bn). The not-for-profit (NFP) sector ($78bn) and the for-profit sector (at least $21bn*) also play a key role in delivering services.

“This $510 billion-a-year spend will come under increasing pressure with rising citizen expectations, growing demand for services, introduction of the NDIS and challenges associated with Australia’s ageing population” said PwC partner James van Smeerdijk.

“This expenditure is largely funded from taxation. This will place extra pressure on Australia in a slowing economy that is at the tail end of the resources investment boom and which is facing major structural changes including the decline of some traditional manufacturing industries. This also comes at a time of increasing fiscal pressures on governments” he said.

“A more effective and efficient social purpose market is not only critical for the wellbeing of all Australians, it is also arguably Australia’s biggest productivity challenge. It is crucial that we substantially improve the productivity of the social purpose market, not just for the economic benefits, but more importantly, so that we can provide effective, accessible services for all Australians”, he said.

“Some very positive social changes have been achieved in Australia since the 1970s – a reduction in infant mortality rate, higher retention rates from Year 7 to Year 12, a higher life expectancy.

“But efforts to improve social outcomes are commonly fragmented or address individual segments or issues. We need to recognise that services are increasingly provided in a complex, mixed market of providers including government, not-for-profit (NFP) sector and for-profit sector, which calls for more innovative and systemic solutions” he said.

“Per capita, Australia is now among the wealthiest countries in the world,” said CSI CEO Dr Andrew Young. “For decades we have increased spending aiming to address disadvantage and improve social outcomes; for example, Commonwealth Government expenditures on health, welfare and education have grown by over five times on per-capita, inflation-adjusted basis since 1970.

“However, given the economic and fiscal challenges we face, now more than ever the challenge is to design and deliver more effective solutions to our more complex social issues at lower cost.

“To be clear, in developing estimates of the quantity of social purpose expenditure we are not expressing judgement about whether this is too much or too little. Rather, we think it’s critical to move beyond the debate about raising more taxes versus cutting services, and develop an informed discussion about how we best use limited future resources to deliver the best outcomes we can for Australians,” he said.

This report represents a call to action for new thinking, collaborative problem solving and an evidence informed debate to develop a roadmap to improve productivity. The report identifies seven key action areas: workforce, data and measurement, innovation, prevention and intervening earlier, technology, system and market design, and place-based reform.